Feature: No jolly season for Ontario manufacturing workers

By Jamie Sturgeon | Financial Post | 11. 28. 08

Scores of manufacturing workers in Ontario won't be pried from family gatherings because of work this holiday season but not for a reason they're likely happy about.

In what may well be remembered as the Christmas Ontario's factories went silent, manufacturers from cars to steel are shutting down operations to clear bulging inventories and save cash, forcing an unpaid vacation upon thousands of their employees.

Thursday, Hamilton's rusting steelworks were caught in a mounting economic downdraft that has already resulted in a series of unusually prolonged production freezes at auto-manufacturing plants in the province.

ArcelorMittel, the biggest steel producer in the world, said it will be shuttering its Dofasco plant for a two-week period beginning Dec. 21 in an effort to slash $1-billion in company-wide spending.

Some 5,000 workers will go without pay during that time.

The stoppage is also designed to alleviate rising inventory levels, said company spokesman Larry Meyer.

Steadily falling demand across the economy has hit virtually every manufacturer regardless of industry. Steel, a building block in countless products, is no exception.

"It's not a surprise," said Wayne Fraser, president of the United Steelworkers Canada. Production has be slowing for months at Canadian smelters, he said, adding that member workers are braced for similar announcements from others.

"Companies are preparing for the worst. We have to be patient and hope this thing turns around."

Limited Christmas shutdowns are normal for Ontario's auto assembly factories, but this year is different.

U.S. auto sales have plunged 12 straight months through October to lows not seen since 1991 as consumers defer spending. And Canadian plants, which ship almost every vehicle they produce to the United States, are cranking down output far more than in previous years.

General Motors Corp., the largest vehicle producer in Canada and the U.S., is extending the typical Christmas shutdown of its Oshawa, Ont. car plant and the CAMI Automotive Inc. plant it shares with Suzuki Motor well into January.

The automaker is also idling its Oshawa pickup plant, which makes the Chevrolet Silverado and GMC Sierra trucks, for four weeks starting Dec.15, said company spokesperson Patty Faith.

"We don't typically take [inventory adjustments] in December," Ms. Faith said. "Of course, nothing about this year is typical."

GM's U.S. sales last month plunged 45% while Chrysler LLC's dropped 35% and Ford's fell 30%. All three automakers are readying "viability" plans due to Congress by Dec. 2 as part of their bid to win US$25-billion in emergency aid.

The companies are also asking the Canadian and Ontario governments for financial help.

Ford's assembly plant in Oakville, Ont. will be idled four weeks starting Dec.15 to adjust inventory, said company official Lauren More. Ford's St. Thomas, Ont. factory will suspend production for four weeks starting Dec. 8, she said.

Privately-held Chrysler confirmed only that its Brampton, Ont. factory would be shut down next week.

Tighter credit markets are serving to exacerbate the downturn, as companies are forced to stockpile cash for common functions they would normally be able to borrow for, like payroll, said Michael Gregory, a senior economist at BMO Capital Markets.

As a result, temporary production halts in industries traditionally unaccustomed to using the tactic are beginning to look long and hard at the option.

"Manufacturers across the board are looking at ways to pare back," he said.

"Will this become more of a norm going forward? Well, that will depend on what happens in the U.S. economy."

-30-

News: Deflation threat still distant in October

By Jamie Sturgeon | Financial Post | 11. 23. 08

The rate of inflation cooled to 2.6% in October as a slowing economy put the brakes on gasoline and other consumer prices, Statistics Canada reported on Friday.

Economists had expected a slowdown from September's clip of 3.4% as the financial crisis moved into the broader economy, however, the drop is sharper than expected, with notable slowing in a variety of core components.

Price declines for vehicles, clothing and computer equipment as well as a slowdown in transportation costs all contributed to an actual fall of 0.5% in consumer prices last month on a seasonally adjusted basis.

Prices at the pumps, however, were the biggest drag on inflation, "easing" to just 13% higher than a year ago, compared with a 27% rise in the cost of gas in September, the federal agency said.

Excluding gasoline, consumer prices rose 2% year-over-year in October. Excluding all energy components in the index, prices advanced 1.8%.

The core inflation rate, which excludes consumer segments subject to erratic price behaviour such as energy and is the metric used by the Bank of Canada to help determine the overnight interest rate, advanced 1.7%, identical to September. On a seasonally adjusted basis, core inflation posted no growth last month.

The lower-than-expected report "gives the all-clear signal to the Bank of Canada to continue cutting rate," said Douglas Porter, deputy chief economist at BMO Capital Markets in a morning commentary.

The Bank of Canada, which has stated it would cut interest rates further to boost the flow of credit, is set to review the key rate, currently at 2.25%, on Dec. 9.

Beyond falling energy prices, the cost of buying or leasing a vehicle fell by 9% for the second straight month. The clothing and footwear component declined 2.8% from a year ago, led by a sharp decline in women's clothing prices, Statscan said.

Food prices continued to exert upward pressure on inflation though, as the average price for groceries was 7.3% more expensive than last October, marking the eighth straight month food prices have gained. Mortgage interest costs also increased.

By province, Manitoba and Saskatchewan were the only two provinces to not report a slowdown. P.E.I. experiencing the biggest decline, to 3.9% from 5.5% in September.

October's results could mark a pivotal point. As the national economy braces for recession and demand for energy abates, some say inflation will continue to fall sharply in the remaining two months of the year.

"Inflation is poised to plunge again next month, as gasoline prices have dropped in the double-digits again this month - probably down about 18% - which alone could take the annual inflation rate well below 2%," said Mr. Porter.

The central bank's targeted inflation rate is 2%.

Some have even warned of a period of deflation in the coming months as developed economies slow rapidly. However, the threat of deflation, or a self-reinforcing period of falling prices combined with limited consumer spending, here in Canada is distant at best, said Avery Shenfield, economist at CIBC World Markets.

"It’s hard to even think about a wage [and] price tumble when average hourly earnings have still been rising at a 4% clip, the employment rate is still close to record highs, and when a weaker [Canadian dollar] promises to offset some of the drop in global prices for goods set in U.S. dollars."